What is a Ponzi scheme?

By now, the news of the carefully brewed Ponzi scheme concocted by Bernard Madoff (the old bear) is so 2008. But, in case you haven't followed this stock market soap operetta play out, Bernard Madoff -- who many refer to as a decades-old force on Wall Street -- was charged in December for running a $50 billion Ponzi scheme, the biggest fraud case ever. How? Let's break it down in an abridged form of the 3-act Shakespearean tragedy that it is:

Act I: Enter one Bernard Madoff, 70, a prominent mover and shaker in the stock market world. Madoff is a former chairman of the Nasdaq Stock Market, founded Madoff Investment Securities LLC in 1960, and ran a hedge fund on the side. He was the chairman of Madoff Securities until Dec. 11, 2008, when the merde hit the fan (more on that in the next act). When you think of a life of excess, Bernie comes to mind. Vacation homes around the globe, private yachts and lavish day-to-day living were Madoff's modus operandi. How very 1980s of him. I can just picture he and his wife partying it up on Carnival Cruiselines in the thick of 1986, he donning a white Miami Vice suit and she in an ill-fitting Bea Arthur-esque dress replete with shoulder pads, both dancing to whatever Lionel Ritchie Top 40 hit was in at the time. But just how did he amass such significant wealth? Onward, to Act II!!

Act II: The day before he was arrested by the FBI, Bernie told his senior executives -- which included his two sons -- that his hedge fund was "all just one big lie" and that it was "basically a giant Ponzi scheme." His sons immediately went to police and the next day, Madoff was arrested and charged with a single count of securities fraud. Prosecutors say he faces up to 20 years in prison and a fine of up to $5 million. The SEC (government watchdogs of all things stock market-related) filed other civil charges against Madoff.

Act III: Although Madoff is currently holed up in his $7 million Manhattan penthouse after posting bail, his life will be missing that je ne sais quoi it once had. I'm not sure how drastically different Bernie's relationship must now be with his two sons (who I've affectionately dubbed "the narcs"), but there's no doubt -- even if he eludes jail time -- that things will be different going forward. The SEC said it appeared that virtually all of the assets of his hedge fund business ($50 billion) were missing. Yup.

The next logical question is "What the heck is a Ponzi scheme?" (Not be confused with anything related to "Fonzi" a la Happy Days.) Hey, it's okay not to know -- what's not okay is to pretend to know what people are talking about, nodding cluelessly in agreement with those around you as they discuss current events.

The term Ponzi scheme comes from one Charles Ponzi, who duped thousands of New England residents into investing in a postage stamp speculation scheme back in the 1920s, according to the SEC.

Translation: A Ponzi scheme is essentially an illegal pyramid scheme. Charles Ponzi thought he could take advantage of differences between U.S. and foreign currencies used to buy and sell international mail coupons, the SEC says. Ponzi told investors that he could provide a 40% return in just 90 days compared with 5% for bank savings accounts. Um, right. Well people bought in to the pyramid, hoping to make bank by giving Ponzi their money. At one point, Ponzi took in $1 million during one 3-hour period, and this was in the '20s, people!

The SEC says that a few early investors were paid off to make the scheme look legitimate, but an investigation found that Ponzi had only bought about $30 worth of the international mail coupons.

Illegal Ponzi schemes are everywhere, from small outfits to frauds that are historic in proportion (case in point: Bernard Madoff's ... situation). Eventually the schemes collapse, which is where Madoff is currently at.

So just where did that $50 billion go? It may be a while until we get a legitimate breakdown, but in the meantime, an angry ex-office manager named Julia Fenwick who worked in the Madoff Securities London office, divulged to the Daily Mail just how much Bernie would drop on various decadent delights:

• Madoff collected vintage watches ($2,900 to $72,000). He also bought wedding bands to match the color and design of each watch ($525 to $1950). During his two or three visits a year to the London office, Madoff would often take advantage of his office's proximity to Savile Row by asking his tailor, Kilgour, to see him in the boardroom (average of $6,000 per suit).

• According to Fenwick, he purchased a black and gray Brazilian-built private jet last year for $29 million. "There were sofas and beds behind curtains at the back of the plane," she said. "He'd installed a cappuccino machine [$1,650] and under all the seats were pockets full of biscuits and sweets. Bernie's initials were on the front of all the crockery." In London, Madoff liked to stay at the Lanesborough Hotel (up to $11,600 a night). Madoff also refurbished the London office last year for $726,000, including handmade desks and a new IT system, for $116,000.

• Madoff enjoyed Davidoff cigars (around $160 a box). Last year, Fenwick attended a barbecue at Madoff's home in Montauk, a million-dollar party with about 400 guests. "There was an oyster bar. And you'd dine on either lobster or fillet steak," she told the Daily Mail.

• Fenwick also went on a golfing trip to Mexico with Madoff and a dozen of his friends for his 70th birthday this past May. "We were all given hooded sweatshirts to mark the occasion. His initials and the year of his birth — 'BLM 1938' — were stitched on to them."